USD/CLP jumps to nine-month highs as copper prices fall to 883.00

• The USD/CLP has risen, reaching new highs, while the Chilean peso lags against the US dollar.
• Inflation is slowly falling in Chile, but the Chilean central bank may not be going far enough with rate cuts.
• Falling copper prices are wreaking havoc on Chile, the world’s largest copper producer.

The USD/CLP pair has soared recently, hitting nine-month highs, as the Chilean peso takes a step back amid falling copper prices and a central bank caught between a stagnating economy and several notable flashpoints.

Copper prices have struggled to gain a foothold in commodity markets, with the red metal trading lower as low as $3,726 per pound in the futures market, below the week’s high near $3,875 per pound.

Copper reached a high of 4.2665 at the beginning of the year and has seen numerous declines, to a low of 3.5283 in late May. With 29% of the world market share, Chile is the world’s largest producer of copper, and its economy is exposed to fluctuations in metal prices on the world market.

The Central Bank of Chile slows down its rate of cuts due to the stagnation of the economy

The Central Bank of Chile this week cut its interest rate to 9.5%, from the previous 10.25%. Chilean inflation remains high, despite having fallen rapidly from last year’s peak of around 12%, and currently stands at 6.5%, more than double the 3% target set by the Chilean central bank.

Chile maintained high interest rates for decades that stifled economic activity and investment, and there are concerns that an excessive rise in rates could begin to reactivate still aggressive inflation.

The Central Bank of Chile will have to strive to maintain stable economic growth while stabilizing a depreciating currency, all while keeping inflation in balance to reach the central bank’s target level by the end of next year, the central bank quotes Chilean.

Chilean policymakers, always concerned about inflation, have recently raised their inflation forecasts for the end of the year from 4.3% to 4.4%.

USD/CLP Technical Outlook

An ascending trend line on the daily candlestick charts is providing dynamic support for the US Dollar (USD) against the Chilean Peso (CLP), and the late August low near 845.0000 looks quickly unattainable unless strong pressure of sale enters the market.

To the upside, there is a turning point near 890,0000, and last September’s highs near 1,000,0000 may be unattainable without a significant deterioration in Chile’s national economy.

USD/CLP Daily Chart